Risk reserve: Adding a Chosen Margin to Expected Loss
A risk reserve combines expected loss with a monetary risk margin you choose. It makes the additional buffer visible instead of hiding it in the probabilities.
Use the Risk reserve Calculator to enter your own figures and compare the result with the worked example below.
Risk reserve formula
Reserve = Expected loss + Chosen risk margin
Worked example
| Item | Example value |
|---|---|
| Expected loss | 1000 USD |
| Chosen monetary risk margin | 500 USD |
| Risk reserve | 1,500 USD |
These are illustrative inputs, not current prices, rates or recommended targets. Where a currency is shown, keep all comparable money amounts in the same currency; conversion examples identify the two sides separately.
How to interpret the result
The tool does not determine a statistically adequate or regulatory reserve. Explain how the margin was chosen and stress-test larger losses.
Related calculations
Method and further reading
The example follows the FinMathly calculator method. For broader background, see CFPB: Building a budget. The background resource may use jurisdiction-specific terms; it does not replace the assumptions of this calculator.
Featured photograph: Pexels.